Do not give up on these dogs yet
High rewards are still a possibility
We all like a bit of a punt, providing the potential reward is high enough. Here are some beaten-down dogs of the JSE. All have fallen dramatically, but they have the potential to surprise on the upside by 80% or more. The risk is, of course, high, but it can be controlled with a tight stop. The charts are on a log scale to show the reversal patterns more clearly. Grindrod This is a popular stock which has greatly disappointed investors. On the positive side, net debt remains low with gearing at only 4% and a net asset value (NAV) of R22.28/share. At the time of writing it was trading at R12.73.
Grindrod is on the cusp of breaking a crucial trendline that has served as resistance since the top in 2014. It is facing stiff historical resistance at the current price.
A break would target R16, which is the most recent high.
The second target is R18.80. This is just below the 200-week moving average, where there will be strong resistance.
Once it reaches R16 I expect it to consolidate for some time. If so, it will lay the foundation for an ultimate move to R23.
Stop is a daily close below R11.80. Long-term investors use a weekly close below R10.80. Aveng Construction stocks have been absolutely hammered, with Aveng falling from R69 in 2008 to below R2 in December 2015. Since then it has recovered strongly to trade at R6.35 at the time of writing.
It is securely above the important 200-day moving average (ma) for the first time in three years. It has formed a superb cup-and-handle pattern, the cup printing a bullish pattern exactly on the 200-day ma.
Target out of the pattern is R7.80. The second target is R9.40; the ultimate one is R14.20.
Stop can be as tight as a daily close below R5.30; however, more wriggle room down to R4.70 is advisable. York Timber The stock has had a precipitous decline from R40 in 2007 to R2.45 in 2009. It has been in a seven-year consolidation. The recent trading update has been favourable At the time of writing it was trading at R2.75.
The seven-year consolidation is in the form of an extended channel (in red). Within the channel there is a further bullish cupping pattern.
First step would be a break of the neckline of the cup at R3.00 (in orange) and a break above the 200-week ma at 3.06. This would set up a first target of R4.10. Second target would be the height of the channel projected up at R5.70.
Beyond R6.00 there is almost no resistance and there is a huge gap on the daily between 7.05 and 9.00. It would be normal for this gap to close, giving a third target of 9.00.
The liquidity on this one can be poor; keep positions small. Stop is a daily close below R2.50.